our next call comes from king george, virginia. on the line for democrats. thank you for waiting. caller: i want to clear up the idea that only rich people create jobs. we have a very small business. we have three part-time workers. we're doing our part, even though we are not rich. guest: thank you for saying that. it cannot be more important. when people argue for a tax increase, they make it sound like it will hurt a lot of people. small businesses are not always that big. in most states, if you raise taxes on people making over $250,000, you would probably be raising taxes on something like 2 percent of the population in the state. it is a disservice to a lot of people and small business to say they do not create jobs. it is also a disservice to

people that work for small businesses. host: there is a twitter message that asks why should the government workers be the only ones immune to layoffs? guest: they are not immune to layoffs. that is the important part. they are far from being immune to layoffs, but there is another issue that is interesting, because sometimes the undertone is to say people in the private sector do not have the pension benefits they to have, do not have the health-care benefits they to have appeared in the issue there is what is happening in the private sector is a tragedy. people have lost their economic security and retirement. they have lost the health care they need. that is bad for them and the economy. for people to say the way to solve the problem is to take it away from people who are

fortunate enough to have it in the public sector, that is kind of like saying if i am sick, i should get well by you getting sick, too. this is not the time to be putting workers in one sector against workers in another. we need to make it better for everyone. host: chris in the bronx on the line for independence. caller: it seems to me like states like california and illinois pay tremendous amounts of money to the federal government. were places like mississippi and alaska raceme -- received a tremendous amount of money. guest: money comes back based on income. that is all right. money is supposed to go where it can do the most. if you live in a wealthy state and you were upset your money is

going to wash in, move to a poor state -- money is going to washington, then moved to a poor state. california requires a 2/3 vote to reduce the budget. sometimes california is trying to struggle against situation with two hands tied behind their backs. host: there is an article in "the new york times" today. the budget plan was found to be a good starting point. he used a stealing assessment -- a steely assessment.

guest: you are right. some of california's problems go way back. they passed proposition 13, which limited local property taxes. that seemed like a good idea at the time to a lot of folks. then the state had to step in and pay for school costs. the political structure of california, which allows a small , hasity in the legislatoure been a problem. people often say, are other states going to go the way of california? probably not. but california has been hurt by the housing bubble and everything else that has made this recession such a persistent problem. host: back to the phones.

you're on "washington journal." caller: good morning. thank you. it would be a good idea -- i do not know about encouraging the states to lower -- get tax breaks, whether they are large or small businesses. they have a hard time in getting health and pension plans for their employees. it seems like the government agencies -- i don't know if they get bigger breaks because of the things that they are offering. for example, to members of congress, it goes to a federal level. whether congress gets pension plans, it seems it is lopsided compared to what your average american. -- compared to what they get. i wonder how you would respond to that. guest: a lot of the tax breaks

that states offered to businesses, the heart -- they try hard to compete with each other. a lot of those tax breaks have been proven not to create jobs. if you run a business, any customer, taxes are a small percentage of what you pay. if your profits are low, your taxes or even lower. give them a tax break in a bad economy, they are not going to hire anybody because they are not going to sell anything. they need to provide health-care benefits for their employees. the federal health care reform, which the repeal of which will be debated this week in the house, is going to help small business to do that. it will be easier for them to provide the kind of protection that people need. host: michigan, larry, on our

line for democrats. caller: these people talk about states having better revenues and everything else. host: go ahead, larry. caller: these people talking about -- everybody is in debt. talk about -- about the health care debate that is going to the golan. it is a big force. -- about the health care debate that is going to go on. gas will it $4, up $5 a gallon $4, $5 perll has will hit gallon. guest: they invest in the future. some of the reasons why things

are so tough, there are a lot of factors. sometimes, not making investments in the past makes it tough in the future. i hope we can learn from this and make sure we invest in schools and health care and all the things that bring prosperity in the long run. the question is, states making the decisions today, they want to take advantage of prosperity, or will they not do that and things will get tougher? host: there was a headline in ""the wall street journal." write -- cities are scrambling to refinance tens of billions of dollars of debt this year. guest: we have heard people saying they are not worrie about it. there are not worried about it

at the state level because they can get the revenue. locally, that could be more of a problem. we have seen some increase in defaults. that is a small percentage of the bonds that have been sold. it is important for the government to borrow money for the right things. infrastructure, buildings, bridges. they have to be careful they don't make the mistake of borrowing excessively. i think that some of the people are overblowing the potential for that crisis. host: ohio, independent, jeff. you are on "washington journal." akron? are you there? co-head -- go ahead. caller: i have a question about our governor. our governor campaigned on a

jobs, jobs, jobs -- he turned around and he refused almost half a billion dollars for a rail project. i just was wondering if you have any insight as to why he did it. maybe there wasn't details about it that would cost the state more, or whatever. but it just seemed odd. guest: thank you. governor kasich said you better get on the bus with me or the bus will run you over. it sells a key prefers buses to rail transportation. it cannot make sense for governor christie in new jersey to turn the money to build a tunnel under the hudson river that would decrease housing of dallvalues in new jersey. i hope the issue is not that

some governors are so tied up in ideological positions that they do not see the need to invest. this is a crisis of meeting human needs and try to shoehorn your ideology into the crisis is not the most practical way to solve it. host: chandler, arizona. caller: having psychological crisis, i would like to talk about the cost of war in states. the total cost of war in california is $144 billion. you can go to your city -- host: what are you talking about? caller: the cost of the wars in iraq and afghanistan. a tiny amount of that could cause lasting peace. this amount of money that we're

spending on war could buy a lot of health care. if you wanted to fix the health care problem, we should get in front of it by finding all the allied health education that anyone wants to take. let me finish. host: municipalities are paying for the war? caller: the portion of the de bt that is theirs, i suppose. guest: you could go back and visit the wisdom over the course of eight years of both funding it war and cutting taxes. never has any president tried to do both at the same time. clearly, there would be more money available that could be assisting states and could be doing other things. i get the gist of what you're saying. -- i get the jist of what

you're saying. caller: i would like to ask your guests -- when the government's gear ready to cut and balance the budget, why do they always do this on the backs of the poorest people? medicare, medicaid, food stamps, they always go to the poorest people. can you explain that to me? guest: the vast majority of the money that states spend is spent on education and health care. a lot of the money spent on health care is for programs like medicaid, which is for people who don't have coverage through their employer or cannot afford their own coverage. you're raising a good point. a lot of the cuts that states are implementing during the course of this recession is in fact hurting the people who are

in the worst shape. look at new jersey and now michigan is talking about reducing their earned income tax credit. that helps working people who are trying to work their way up the ladder. the push back check comes when -- the contention it will cost -- jobs and the people will leave the state. there is no question that to the extent cuts are trying to predict states are trying to solve this crisis through cutting, people getting hurt the are hurting the most. host: this report from center on budget and policy priorities talks about $60 billion in the 2009 federal stimulus and 2010 jobs bill remains to help with 20 11th fiscal problems. if the states are looking for assistance, how did they go about looking to get part of

this $60 billion that is left over? guest: the federal recovery act that whelp balance budgets. it is beyond numbers. it helped people keep their jobs. help teachers and firemen and cops keep their jobs. last august, more money was approved by congress. the attempt to make a bigger did not work. congress is showing no appetite for doing it. it would be a good investment. to the extent states are cutting spending, that hurts the national economy. states cannot put money into a shredder. they put it back out in salaries and contracts and services. as the government spends more, states spend less. it is like filling a bathtub the same time your opening the drain

to let water out. host: john from vancouver, washington. caller: good morning. our governor in washington came on television the other day and she said in order for the state of washington to get out of the problems they are facing, she listed in order what people could do as a state. you need to rely on yourself. you need to rely on your family. you need to rely on religious groups that you are affiliated with. and rely on the state. the state no longer has any money. i propose the reason the state of washington is in the problem is in it is because she has taken that list previously and slipped it. that is all i have to say. guest: i am not entirely sure i catch what you are saying.

the governor called for a balanced approach. she has looked at the revenue side of things. i think she is making the point that everybody needs to help. people are in such tough times. sometimes you hear people against taxes say government should be like a family. tighten your belt. in reality, that family also says, how can we get some more money to feed a family does not say we have four kids and we are only going to feed 3. persius expressing the frustration that many feel. host: our last call for jon shure from center on budget and policy priorities comes from alabama. caller: yes, sir. everybody talks about fiscal responsibility, everything can be fixed. get employees and have bids for

the jobs and employers to do the jobs for the safety or even the federal. except you cannot say, you have to pay so much to do the job or you have to pay $20 an hour because this is a federal -- whatever it is. the lowest bid, that is the job. you are talking about high-speed rail. if there was any money to be made in high-speed rail, the private industry would have made it. look at amtrak. amtrak is now -- is losing $30 billion a year. since 1977, when they took amtrak over to government. they have been losing since then. host: we will leave it there and go to jon shure for his last

comments. is st: let's not blame th crisis on working people. dollar for dollar, they are not paid more for people in the private sector. to say if the private sector could make money on it, they would. there are a lot of that the private sector cannot make money on. maybe the private sector cannot make money on schools or public safety or environmental protection, but we still need those things. we rely on government to do things for all of us for the common good. there is always a profit in

the special inspector general in charge of overseeing spending for afghanistan reconstruction resigned last week. members of congress urged president obama to dismiss arnold field saying he is not aggressively looking to billions in spending. in a few moments we are going to show you an hour of mr. fields testimony from hearing in november. before that, some back down from a reporter covering the story. >> jon bennett defense reporter of the hill newspaper. did general fields resigned voluntarily or was he fired? >> by all indications it certainly looks like he was fired. he was asked to resign. there was a lot of pressure from the senate especially, pressure from the other side of capitol hill as well, but a group of senators had really push hard last year and their pressure got more intense as the on.

it got more intense as more audits were done of the audits, more reviews of why general fields' organization was or was not doing and other government groups in washington also joined the push for him to resign. >> senator mccaskill told mr. fields at a november hearing quote i don't think you are the right person for this job. what were the major criticisms of mr. fields? >> well, one of the things that seems to be at play here is him coming from a military culture that is salute and get the job done, not rock the boat and if you think about it and senator mccaskill had pointed out, that is not what you need a special inspector general of anything to do and certainly not someone who is leading an effort like studying afghan reconstruction.

you need someone who will question authority. you need someone who will pull back the curtain and look at everything. that is not always the military's strong suit. >> he had just fired to his top deputies -- not deputies. why? >> to me it looked like he was trying to head this off at the pass and it just wasn't enough. the pressure was too much. >> president obama have been under a lot of pressure to fire mr. fields since last summer, so by now? >> well, think this was just a matter of timing. i think now is a good time to do it. sometimes in washington we will see this prop up where there is a lot of public treasure, a lot of headlines and the administration will back their guide. administrations of all stripes will back their guy and then when the dust settles and things

quiet down everyone is paying attention to other things, then they ask the individual to resign and that is exactly what this looked like. >> and the idea of who might replace them? >> we don't have a clear list of candidates yet but i think it is a fair bet to assume that we won't have another retired general or someone with a military backed round. i think we may see someone with a stronger auditing that round, but a list of candidates is just not clear at this point. >> john bennett, defense reporter for the hill newspaper. you can see his articles on line at the hill.com. john, thanks very much. >> general fields, welcome. thank you for your attendance today. at introduce you to the hearing.

general fields has served as special inspector general for afghanistan reconstruction since july of 2008. general deals previously served as deputy director of the africa center for strategic studies at the department of defense and is a member of u.s. department of state assigned to the u.s. embassy in iraq where he performed duties as the chief of staff of the iraq reconstruction management office. he retired as a major general from the united states marine corps in january of 2004 after 34 years of active military service. let me state for the record how much your record speaks if you as an american, as a patriot and how much our country owes you a debt of gratitude for your many years of service. on behalf of the united states of america. it is the custom of the subcommittee to swear and all witnesses that appear before us so if you don't mind if the bike you to stand. do you swear that the testimony you will give before this

subcommittee will be the truth, the whole truth and nothing but the truth so help you god? we welcome your testimony general fields. you may begin. >> thank you chairman mccaskill and frank remember, senator brown. i appreciate this opportunity to be here today. i would say that it is a pleasure, but i would be telling a lie if i were to say so. but it is a privilege as well as an opportunity, and i wish to take full advantage of that opportunity. i have worked in support of sigar for the past basically year and a half, funding received in june 2009, fully

funded this organization. i have built sigar from nothing but legislation to 123 very well informed and talented staff of which 32 today four full assignments from 13 months to a very dangerous place known as afghanistan. this work is challenging. i have to find people who are willing to put their lives in harm's way in afghanistan, conducting this work in the midst of a very competitive market of investigators and auditors. i am proud of the staff that we have. we have conducted worked in 22 of 34 provinces in afghanistan and 48 effort locations. we have reduced 34 audits, over

100 recommendations, 90% of which have been set aside the institutions of this federal government that we have scrutinized. they are using our work. i could cite any cases that i will not at this point come up but our work is in fact making a difference. i did and i've vitiate that the chairwoman, chairman, if knowledge that i've request if horse defeat assessment. we would not normally have undergone the chief thing until the earliest would have been 2012. i wanted to make this organization what senator mccaskill would wish that it be, and that assessed and for which i individually and unilaterally made the request was intended to do just that. my leadership has been referred to as in in the next.

that is first-time senator that in all my life a man of 64 years of age who has supported the federal government for 41 straight years of which 34 then terry office or. i don't even allow my own auditors to refer to the people in afghanistan as inept because it is too general a statement for any human being. i have met with many people in afghanistan from the president of afghanistan to the little children in the province. when i asked those little children, what is it on which this reconstruction effort and $56 billion of -- the united states has invested should be based and i want you to know those children who are no higher than my knee said to me the same

thing at resident karzai said as well as his ministry. they want energy or electricity or lights. they want agriculture. they want education and what really broke my heart is when those little children told me that what we really want is a floor in our school. that is what we are up against in afghanistan. we have created by way of this $56 billion in opportunity for the children in afghanistan who i feel represent the future of afghanistan as well as the rest of the people, and i would be the last senator mccaskill and senator brown, to condone in any form or fashion any activity that leads to the -- less than the full measure of that 56 billion being used for the purposes which it is made available. i want the subcommittee to also

note that i take this work very seriously. like? because i raised up in south carolina in a family not unlike that in afghanistan where the level of education from both my mother and father was less than fifth grade, but nonetheless, the best training that i've received in my life came from my mother who had less than a fifth grade education. i wish that someone had read $56 billion to bear upon my lify important position, trying to influence what is going on in afghanistan to to the best of my ability, using a very knowledgeable and competent staff by which to do so. i raised up hard ladies and gentlemen in poverty myself. i worked for less than $1.50 a day, about with the average afghan makes today in year 2010.

on the day of president kennedy was varied which was in no school day for me, my brother and i shoveled stuff out of the local farmer set to tank with a shovel for 75 cents per hour for the two of us. i know what it is to live in poverty and i know what it is to have an opportunity and my country has given me dad and by which i am pleased and very grateful. i will do my best senator mccaskill and senator brown to measure up to your full expectations. i appreciate the entry -- emphasis you have placed on contracting in afghanistan but i want also to say the legislation i am carrying out his three dimensions. contracts is not the exclusive one but i will agree with you that is where the money is and we should focus more on that but i'm also tasks to look at the

program as well as the operation that support this tremendous reconstruction effort and i promise you senators that i will do so. thank you. >> thank you general fields. general fields, i certainly respect your life story and what you have accomplished and no one and i can speak confidently for senator brown and every other united states senator, no one questioned short commitment to the united states of america. that is not the question here. the question here is whether not the important work of the inspector general and afghanistan has been fulfilled and completed, especially within the timeframe that we are working with because of the contingency operation. you submitted 12 pages of written testimony for this hearing, less than one page of those 12 address the serious

deficiencies found in your peer review by other inspector general's trying to measure the work of your audit agency against the standards that are required in the federal government. you did say in your testimony that the findings would help you strengthen your organization and that you have now made changes. let me talk about the loss that you are operating under. the law that you are operating under, i am sure you are aware, requires a comprehensive audit plan. are you aware of that general fields, that the law requires a comprehensive audit plan? >> guest. >> and when did you begin work on a comprehensive audit plan? even begin work on a comprehensive audit plan senator

when i published -- [inaudible] how we plan to proceed with a very new oversight entity for itself can never afford to delivered to congress -- sorry for him and. >> that occurred the first week of january 2009. we commenced the process of bringing him aboard of course much earlier than that and

then. >> and you had been at the agency how long when he joined the agency? >> i've been at the agency's. >> since july 2008, correct? >> that is when i was born in. >> and out of plan below requires and i'm sure, i hope the first thing you did was to look at public law 110, 181, 122 statute 235 and look at the statutory requirements of your job. that plan that was required lays out that it must be consistent with the requirements of subsection h which are the audit requirements that the congress placed on sigar. are you familiar with the audit requirements of subsection h general? >> in general, yes i am. >> could you tell us what those requirements are? >> that we would conduct thorough audits of the spending associated with our contribution

to reconstruction in afghanistan >> i am not trying to play gotcha here, general but there are seven requirements in section h and i'm going to lay them out for the record. after i do each one i would like you to tell me if that has been completed and if so, when. the first one is these are the things that a minimum you are required to examine the special inspector general. the first one is the manner in which contract requirements were developed and contracts were tasked and delivery were a word or. has that been done by sigar? have you examined contract requirements in afghanistan and contracts or tasks and delivery orders and how they were awarded? has your agency done that at this date? >> we have conducted several contract audits. each of those audits has

addressed matters associated with how contracts came about. >> how many contract audits have the completed? >> we have completed about four contract audits. >> and how long -- you have done for contract audits but isn't it true that all of those have occurred essentially in the last 12 months? >> that is correct. >> number two, the manner in which the federal agency exercise control over the performance contractors. have you done that audit work? >> we have examined in each of our audits the extent to which controls have been in place to guard against waste, fraud and abuse of the american taxpayer dollar. in so doing, yes maam, we have looked at those matters as they relate to contracts simply in those areas in which we have conducted focused contract

audits of specific initiatives for which funding is being available. >> alright, so the first requirement dealt with contract requirements and test and delivery orders. the second requirement a matter of control over contractors of the federal government. number three, the extent to which operational field commanders were able to coordinate or direct the performance of contractors in the area of combat operation. has that worked in done? >> senator the very first audit that we conducted was an audit, a contract being supervised by cstc-a. that's contract is worth $404 million to the american taxpayer. >> how many audits have you done that address the oversight of

contractors by field commanders? >> 40% senator of our audits have either been direct audits of focused contract audits or a contract related audit. >> i thought you said you have done for audits on contracts. >> i said for audits because i was referencing for focused contract audits, which were multi-million dollar infrastructure initiatives, specifically associated with the standup of the afghanistan security forces but i am also saying that we have looked at contracts from this not so much focused contracts that do not necessarily address it a certain initiative but those audits address contracts in general that relate to the standup of

the afghanistan security forces and other initiatives in afghanistan. >> number four, the degree to which contractor employees were properly screen, selected, trained and equipped for the functions to be performed. is the report you could point me to or i could get reassurance that we are doing adequate selection, training equipping and screening of contract personnel and afghanistan? >> senator the very first audit once again that we published, the 404 million-dollar contract, we found that audit. at first the supervision of that particular contract was inadequate. whereby the actual entity, the expert in contract was really living in maryland and not physically located on a permanent basis in afghanistan. >> how many contracts are operational and afghanistan right now? >> i don't know, senator. >> can you give me a ballpark? >> i know that tastes on our

most recent audit, between 2007 in 2009, full contracts for which we can find information at that point in time, 6900 contracts among which i am confident are a number of the type to you just mentioned. >> okay, so i have asked several questions in each one you refer to the same audits of one contract, so what the what the to say the number was? >> 6900. >> we have almost 7000 active operational contracts and there have and for audits completed of those contracts? >> the 6900 is a rollup of contracts in general regarding afghanistan between the years 2007 and 2009. how many of those might be defined as operational contracts i don't know. >> you don't have any reason to believe that has gone down, do

you? >> no maam. >> reinfected is probably ghana. >> absolutely. >> absolutely. the next one the nature and extent of any incident of unlawful -- contract employees. many audits have you done that would reassure the american people that you have in fact look for, found or are confident there is no unlawful activity by contractor employees? >> senator i would say in each of the 30 for audits that we have conducted, that those matters have been of concern. but each of those 30 for audits may not necessarily have been directly related to a contract. >> how many bindings have you issued dealing with misconduct or unlawful activity by contractor employees? how many findings in these audits? >> i don't think that we have identified misconduct per se. we have identified issues that

we have given to our investigation for further follow-up. i can specifically -- i am sorry senator. >> that's okay, go ahead. >> i can specifically tell you of a specific audit that we conducted which started out as a general audits of the kabul power plant, an item worth $300 million to the american taxpayer and during the course of that audit, we found anomalies that we felt were investigatory in nature, so we tailored and shortened the scope of our audits and the rest of those matters were turned over to our investigators and they are still being pursued. >> the remaining two requirements in terms of audits that must be performed, the nature and extent of any activity by contractor employers was inconsistent with the objection of operation are feel

commanders and finally number seven the extent to which any incident of misconduct or unlawful activity were reported documented and investigated and prosecuted. to what extent have you been able to produce a report as to how much unlawful activity has actually been investigated and prosecuted? >> i don't have an answer for that question at this time, but i will assure the senator that as we conduct our audit work and as we conduct our investigation work, all of those matters are in fact taken into consideration. >> thank you general. senator brown. >> general, and thank you once again. i mirror general mccaskill -- senator mccaskill's kind words about your service and as someone who is still serving i'd greatly appreciate that service and a noted in her testimony how you had great concern for the afghan children and the needs of

the people of afghanistan. i understand that. i also have however great concern about our soldiers and the men and women that are fighting and also the taxpayers that are providing that $56 billion. it doesn't grow on trees, and that being said, no you have been in the position since july of 08 and the last panel that you heard noted serious deficiencies in management deficiencies during their review. now that you have held the office for over two years with major course corrections are you currently taking to rectify the serious deficiencies? [inaudible] that was the month during which i was privileged to be sworn into this position by funding for sigar did not really come until much later.

that is why i pointed out that we did not receive full funding for this organization until june of 2009. >> so noted and that is a good.. >> thank you senator but in reference to course corrections one of the reasons i asked for the cigie to come in early, about two years in advance of the time of which it normally would have as we anticipated, was to help me set the course correctly for this organization and i am using the results of both the audit, the investigations and the so-called capstone review of sigar to help chart the course. so i have put in place as of the 30th of september of this year, the recommendations and suggestions made by the review

team. >> and how it be done that? senator mccaskill and i are concerned about the money. i know you have done some good reports and investigations and other things that you have commented on which his policy issues relating to the ability for the afghan people to live and grow, but in terms of the things that many taxpayers right now are concerned about is the dollars. they are growing wary and they want to know where their money is going. what actions based on the recommendations do you have in place? >> thank you senator. i am a taxpayer is well so i have as much interest if not more in my particular case is the individual american taxpayer. we are doing a better job of risk assessment. we found that to be a weakness to which earlier attention in a much more pointed way should

have been turned so we are improving the means by which we determined where it is that we should focus our efforts. >> and where is that leading you now? >> well, it is leading us to a greater focus on contracts because that is in fact where the money is but as the initial questioning by madam chairman, we have to also address the front end of this reconstruction effort. to what extent are the policies being put in place by those who are implementing this $56 billion? >> i understand that and i respect that approach but right now, now that you have been put on notice by everybody that hey we understand the policies and all that stuff but what specifically are you doing now based on the recommendations that you have been given? what are you specifically doing so i can tell the people back

home in massachusetts and all the viewers we have where are you focusing? give me some specific examples so like an advocate and say he is kind of learning. he is learning and growing. he is taking a spot and getting the funding after year of being sworn in and he is now think evan and independent requested audit, so give me some specific examples. i don't want to beat a dead horse here but i need to know where exactly you are focusing. are you focusing for example of how the taliban is allegedly getting money from us taxpayers? are you focusing on that? are you focusing on the bribes and payoffs? are you focusing on the fact that the afghan army is not after the six plus billion we have spent a still not up and running? i mean, where you focusing exactly? >> sir, we are focusing on several broad areas but at the top of that list happens to be

contracting. >> with specifically in contracting? what area are you doing? are you looking at bridges, roads? what are you doing specifically. i know contracting is that. we have 7000 contracts are more. have you actually initiated some investigations already? >> sir, we have 89 investigations ongoing as we speak. >> where they focus? >> they are focused on fraud and theft. >> based on that what types of things are you investigating? what examples could you give to me and the american taxpayers of what your initial, what you are seeing. what made you go to that particular area versus another area? >> because that is where we feel it really is for the american taxpayer dollar. >> based on what? some tipoffs? some prior types of contracts?

why did you specifically want to go for that area? >> based on all of the above, sir. >> okay. can you share your thoughts about how we can strategically deal with this very complex challenge? in her testimony you stated your concern about the role and cost of the private security contract specifically as it relates to fueling, corruption and financing insurgents and strengthening criminal networks. what tangible actions are required to try to differ this corruption? what do you think, what can you tell me about that? >> sir, i believe that the fight against corruption must take place on several levels and many dimensions. the first of which we need to give consideration to what it is that we are doing in support of the reconstruction effort and the government of afghanistan.

we are conducting a reconstruction effort in three broad areas, security, governance and development. and each of those we feel needs to be addressed. we are devoting and have devoted $29 billion through security in afghanistan itself, a standup of afghan security forces, the police and army. we have devoted $16 billion to governance and development and therein lies the vulnerability of the american taxpayer's dollar. so we are pursuing audits and investigations that will help mitigate the potential for the american taxpayer dollars to be wasted, frauded or abused. >> i know he were getting these $46 million to complete your mission. that is a lot of money and i noted here in the charge senator coburn reference he basically identified in terms of fraud waste and abuse about $8 million

so 46 you have been given $8 million in the timeframe. can you tell me and us why there hasn't been more of a kind of a collection on that fraud, waste and abuse up to this point? >> sir, a contributing factor is the slow start that this organization had in not standing up, a part of which i am inclined to attribute to the lack of funding. >> listen i'm going to give you that one because i know you are sworn in, you get the funding and you need to give it up and get running so let's take the last nine months for example. have you had any success you want to share with us? >> i feel like we have had successes. $6 million that reported in our most recent report. we have an ongoing forensic audit of $37 billion, looking at over 73,000 transactions from which we intend to be factored

towards crime, or potential crime and we are moving in that direction so we are using for a sick and l. ways to fairly quickly identify and restructuring audits in our investigations accordingly. >> and one final and i will turn it back. in your latest sigar quarterly report on page 6 it mentions afghan security risk management has been suspended and debarred after was found filing large sums of money to insurgents. i met with general petraeus on many occasions concerning our afghan policy and i agree with him that we must be better buyers and buy from better people. what oversight actions are you taking through your audits and investigations to prioritize the general petraeus directives that those funds will be given to better people if not to our enemies?

>> first, i applaud general petraeus and the initiative that he has taken to address this issue of corruption. the standup of task force 21 is one of those very significant initiatives. we are working very closely with task force 2010. we are also working with the international contract, corruption task force in order to harness the investigatory initiatives of the federal agencies so that we can bring very quickly to bear pond funding folks who are bilking building the american taxpayer out of money. >> general fields in your testimony to me a few minutes ago you referred to thesis dickey audit. the first audit you did.

is that correct? >> that is correct. >> and, of that do you recall how long that audit was, how many pages? >> i don't recall how many pages but i'm pretty sure it wasn't a very large audit senator. >> is 12 pages sound right? >> that may be about right. there is a summary of that audit yes maam. >> how many pages in that audit actually contained audit work? >> i would have to review that audit. >> would four pages sound correct? >> may be, senator. >> the other audit you referred to in a previous testimony with the audit on the kabul power plant. >> that that is great. >> had a very similar audit been done by usaid exactly one year prior to the time that you did that audit? >> that is correct. >> let's talk about the funding of your agency. usaid did a similar audit to the one that you did one year prior

on the kabul power plant. do you know what the funding for usaid has been in terms of their inspector general work in afghanistan over the last, how many, five or six years? do you know what their total funding has been? >> funding for usaid in terms of its operations in afghanistan? >> $10 million? what they ever covered for a 10 million-dollar taxpayer investment. 149 million. and you have received $46 million, is that correct general? >> 46.2. >> you will have her covered $8.2 million? >> at this point in time, yes. >> can you understand as an auditor is a look at those numbers it is very hard for me to reconcile the notion that a lack of funding has been your problem?

>> senator, the recoveries that we have thus far experience are small, but the full measure of the outcome of our audits and investigations that are underwas not thus far been determined, and our forthcoming numbers will be much larger than the numbers that we submitted to the cigie in their role of of work that the federal community, federal ig's in general had done for 2009. ..

started out at 3.7 million at a time when we had people do the very specific type of work for which we have contacted to help us. the intent of that arrangement was to facilitate the gaps of our own personnel and the skills the were needed at that point in time and over a period of time we would commensurately reduce that contract as we were able to bring that particular level of talent aboard. we are doing that, senator. >> you spend 3.7 million on the base and 2.7 million this year and their only function is to

produce reports to congress; correct? >> they provide assistance to us in handy the based management, that's one aspect of it, but the principally assist sigar and rickards is open to congress which is a detailed report, very important report coming and we feel the extent to which we have gone to ensure that report is put together correctly and is presentable to this congress is commensurate with the money that we have invested. >> i want to clarify this because i will tell you candidly i don't want to lay off my fellow members of congress here, but an investment of that kind of money and a report to congress when there is the kind of audit work that needs to be done and when you are using a lack of funding is one of the rationale because of why more of

its work hasn't been done and it's taken so long for the audits to be performed or produced in a matter commensurate with the size of your agency, let's compare your contract total is $6.2 million the total amount of funding to aidig is 10 million, and for that tamale we have hundred $49 million back. meanwhile, with a 6.6 million all we've gotten is a shiny report and pretty pictures for members of congress most of which will never see. do you understand why that causes a pause about whether or not that is a strong leadership decision, general fields? >> cementer, we have been told by members of this congress the appreciate the report we provide for them. similarly, the federal community elsewhere have told us they appreciate the detail and the correctness of the report that we produce. >> let's talk about the contract with joseph schmidt. you have an audit and its

completed your peer review and it's not good. and in fact, only the second time in 50 peer reviews you have been recommended to lose your law enforcement capability in an arena where desperately needed all enforcement capability is absolutely essential. you had this audit after the audit is done you how your someone, it's my understanding, to help you monitor compliance with the recommendations. is that a fair characterization what your contract was supposed to represent? >> that is a fairly fair characterization, senator. but we hired this independent monitor commensurate with a plan of action of milestones i put in place in response to the results in order to move sigar quickly

along to putting in place the corrective action that had been identified for us. i said that date at 30 september of this year. and we are better organization, senator, because we've had this external agency to come and provide us with this particular expertise during that period. >> this is in no bid contract. >> it was a sole source contract for which we made requests. >> that is a no bid contract, correct? >> that's correct. >> why use it is you needed the immediate establishment of an independent monitor to independently velte and verify agency actions and compliance in response to issues contained in sigie letter to the attorney general of the united states. is that correct? the information in the document

for the justification and approval of a new bid contract. >> senator, we wanted to quickly correct the areas of concern pointed out by the peer. we didn't wish to lose or put in jeopardy any further the authority for criminal law investigation that had been provided to me by way of the department of justice and that this entity would provide the independent look at us and we felt the would help mitigate any concerns that this congress and the overseers on capitol hill of sigar might have as well as to reassure anyone else who might be interested in the outcome of that your review. >> isn't sigie back to the independent monitor whether you comply with the audit now? >> repeat the question? >> is and sigie looking to see if you comply with the audit?

aren't the independent body you're looking for to see if you have in fact correct the deficiencies? >> sigie is now looking at the audit piece the the investigation peace has yet to go under way but nonetheless i have made requests that they come back. >> army contract in command who awarded the contract on behalf of sigar said the contract was sole sourced because there was only one person, mr. schmidt, available and qualified. do you reach out to any other retirees if you were going to help someone else to come in and tell you whether or not you were complying with the audit? >> not at that time, senator. >> did you ask for more suggestions from mr. reiner or mr. more? >> no we did not to be as committed to talk about using mr. schmidt? >> did i what? >> did you talk to mr. more and his team the group of independent peer review auditors that look at your process and

quality control in criminal instigations' did you discuss mr. schmidle's with them about hiring mr. schmidt? >> no i did not. someone may have done so in my behalf but i didn't push on them. >> when my staff spoke with your staff in september my staff said they expected mr. schmidt would be entering into a subcontract with louis free, the former director of the fbi who also works with mr. schmidt of the independent monitor team for chrysler or don learn now. sigar officials say they believe that he was, quote, intimately involved in, quote, the outreach to attorney general holder. was that your understanding? >> that isn't necessarily my understanding and i cannot account for what folks may have communicated to your staff or to anyone else. my intent, senator, is to bring aboard an independent entity to provide a few oversight of the

plan of action that we were putting in place to move this effort quickly along so that we could come into compliance with the department of justice regulations. >> did you expect that mr. free was going to be working on the contract, general? >> i did at the outset, yes, ma'am. >> i had confidence -- >> what was mr. free's function as it related to what you expected him to do? reach out to general holder? >> no man. abundant expect anyone to reach out. i expected the oversight being provided by this entity to help sigar and the inspector general correct the issues that had been pointed out. >> your staff said to us mr. free would be intimately involved in and outreach to general holder. you understand what this looks like, don't you?

>> i would ask that the senator explain what you are referring to. >> it looks like he went out and found somebody who could get to louis free, could get to attorney general holder and make sure you didn't lose your ability to exercise all enforcement function. a look like you're trying to hire someone to help influence the attorney general of the united states as opposed to fixing the problem and then having the same independent group come back and certify the you fixed the problem. >> senator camano has inspector general had confidence in mr. free because he was a former director of the fbi, because he is a former judge, and because as i learned along the way, mr. schmidt was associated with his firm and i had confidence

because of the contribution already to this government and instead mr. schmidt's contribution to the government in a rule that i was playing at that time. the was my line of thinking that had nothing to do, senator, with any other potential influence in reference to the attorney-general. wanted to correct the issues that had been pointed out to me and that was my only objective. >> it's my understanding that mr. moore -- >> this was worth $100,000, correct? he got 100 grand? >> no, senator, the contract is worth 95,000. >> the contract is worth $95,000? and how many days did mr. schmidt work on this for $95,000? >> he was with sigar for

approximately two months. >> 60 days and he got 95,000? >> that is correct. >> about $45,000 a month? >> senator, we follow the rules engaging in this contract. we utilize the contract center of excellence in washington that many other entities use, and the $95,000 was the share market value for this specific work we were requesting. >> with all due respect, general, it got to tell you the truth, you were supposed to be finding ways to save the american taxpayers' dollars, and please, i don't think it's a good idea to say that it was fair market value to pay somebody $45,000 a month to try to fix the problem in your investigations unit to the

satisfaction of the attorney general. isn't it true that mr. moore is going to complete the work in just a few days and it isn't going to cost anything in terms of determining whether or not you have a proper procedure in place to do what enforcement work as the special inspector general of afghanistan? >> senator, i believe that the decision that i made at that point in time was a good decision. i did not anticipate all of the scrutiny that this particular initiative has received since that decision. had i had an opportunity -- if i had an opportunity to do it all over again, i could only would have made different decisions. >> that's good news. that is good news, general. senator brown. >> thank you. i just a couple of questions. in fy even your against

$6.2 billion if approved how will that money be tracked and how would it be measured and what expected return on the investment would you expect the tax payer to get? >> senator, we would expect the full measure of the 16.2 billion, which is primarily designed for the the secret of the afghan security force we expect the full measure of the taxpayers' investment in terms of the returning will be achieved. to that end, we have asked for additional funding so that we can increase the numbers and our staff so that we can provide the coverage and oversight necessary to ensure american tax payers that money is completely used for the purpose is made available. >> when you say full measure what does that mean exactly? four measure? >> i know there is some military.

i get. when you expect to get the full measure what does that mean exactly? >> full measure means that the 16.2 billion was requested for specific initiatives associated with the stand-up of the afghan security forces. so the full measure means that that 16.2 would be exclusively used for that purpose without waste, fraud, and abuse. that's what i'm referring to, center. >> i see this 25 -- if i am reading this correctly, to are you going to spend and personnel compensation? do you have any idea? >> personnel compensation not unlike the rest of the federal communities hire, and a personnel compensation is i believe concerted with my sigar counterpart.

our staff who work in afghanistan by way of compensation package approved by this congress receives 70% in addition to their regular pay and location pay. we have to pay that center. sigar is an independent agency i must pay everything we receive, personnel and otherwise. the cost is very high, but we are at every organization, senator, so when we bring people aboard, they know that coming and we bring people aboard for 13 months. it's not like a standing and statutory federal agency and the inspectors general thereof. we are also competing in a market where 70 other inspectors general in this city are looking for auditors and investigators and we have to compete in that regard with their compensation in order to bring aboard the level that we need.

i wish it were cheaper, senator, i do. as the mick let me finish with this and then i am going to move on and we're going to go back to the next panel. i would like you to focus -- i just want you to follow the money and find out where the money is going and is zeroing in on the taliban issue, why and how they are getting our money is number one. i want to live there are bribes and payoffs. if there are people that are doing it, you know, what we are going to do to stop it and plug that week week and i understand that but for you not telling me i would overlook the fact you got appointed and there was a transitional period so i get that. but now that you've done all of the elections and policy stuff and you focus i think the message for me and senator mccaskill and the folks that did your independent, i commend

you for regional and doing that. either the cia situation are you seriously wanted to actually get some guidance, they had given you the chitin's and i think we are giving you some guidance. please protect our money and find a way to bring that number up so we can feel confident that the millions we are getting you we're getting millions in return, at least make it a brush. that is my only message, and i have nothing further. thank you. >> let me clean up a couple of things. i don't have a lot of other questions, but in fact, lewis humphrey was never engaged or declined to participate in any way in this contract; correct, general fields? >> that is correct, senator, as far as i know. what assistance mr. free may have given mr. schmidt, which i'm not aware and i'm not able to comment on that, senator. >> i have not gone into any of the issues surrounding mr. schmidt in his previous

tenure the department of defense, but were you aware of time you hired him that there had been some controversy concerning his tenure as the part of defense inspector general? >> senator, i was completely unaware. >> would that be something that he would have done just to bct google search that there were questions asked so you would have a chance to ask him before you hired him and be clear that there were not in the problems associated with him? >> senator, our initial initiative is to engage the group of which mr. schmidle to our understanding was a part. >> so now you've said that the reason for hiring it was to get to louie free, to engage louis free. islamic not necessarily. the reason for hiring any of the entities to help bring the expertise we need at that point in time to address the issues in

sigar. >> i said why didn't you get them and use it because we were hiring him to get to leave free. you said that in your testimony. >> i didn't say i was hiring anybody. >> why did you not that mr. schmidt before you hire him? >> i personally had no cause to do so. these matters were being handled by way of contracting officer and thus d.c.. they didn't have any reason to doubt the integrity and so forth of mr. schmidt, and as i ever stand, the issues of which he may have been accused during his tenure as inspector general this is information i found out subsequent to the senator having raised questions about my decision in hiring this particular contractor. but as i understand it, the issues that were brought up

concerning mr. schmid or not corroborated in the fall of analysis. spec you understand the reason that this is even, but mr. schmidt is in preparation for the hearing we did a stick investigative report that sigar should be doing. and when we did basic investigative work we found senator grassley had a lot of questions about mr. schmidt when he was the inspector general with the dod. i am not saying whether senator grassley was right or wrong. i am saying it is troubling you would not be aware of those questions before paying someone the amount of four record $50,000 a year to do work for the federal government. that is what i am getting at. the audit agency is careful about who they hire and whether or not there is any appearance or problem and i am not saying there is a problem that affect you didn't even know that there might be one is what i'm trying to bring to your attention. did mr. schmidt ever go to

afghanistan? >> not under the contract involving sigar to my knowledge. >> the p that you claim is market value did not involve any high risk by mr. schmidt's office. >> potentially correct as far as i know, senator pete e.u. >> let me also say, senator, that mr. schmidt is a registered government contractor has orders to register as far as i and the stand. >> i anderson, general, but i think the point i am trying to make is your job is to oversee contract in. your job is to set the gold standard on subcontracting so you do a sole source contract, no bid, you immediately hire someone, clearly there wasn't even if it done that brought to your attention there were

questions you need to ask about the previous service as an inspector general. that's the point i am making, general fields. that's the point i'm making. have you ever worked with an audit agency before you were given this job? had never done any audit work or been a round of the terse before you were given this job? >> yes, senator, i have been. >> tell me what capacity you would work with all the terse prior to taking this job. >> i worked with auditors in conjunction with my support to the iraq management reconstruction office or irmo to read this was the three construction support of iraq. >> what agencies did you work with? >> i didn't specifically work within audit agency per say, but

the chief of staff of irmo, my work covered multiple dimensions of reconstruction in iraq. >> i served as the inspector general for the united states central command. i did that for two years and that work involved some degree of oversight involving audit work but not necessarily the professional auditors by which sigar is credited characterized. >> this is something the public is not aware of there is a vast difference between the ends peter generals and the active military and inspected generals, correct general fields? >> i would say that is correct. spragens bigger general's report to the commander and they're there as the eyes and ears of the commander. they have no duty to report to the public or to the congress or perform an independent function in terms of monitoring taxpayer

dollars, correct? >> those inspector general's are guided by the basic intent no less of the act of 1978 by which on and other federal the inspectors general are a guide as well. >> i understand. just i was shocked when i went to iraq on my first contract oversight trip and i am sitting with inspectors generals and i didn't realize we had to varieties that were different than the federal government. i wish they were not called the same thing. i wanted to rename the in general some other name and the military informed me they had the name first suite got a little tricky cities are not the same function and they do not do this thing work. the reason i ask this, general, is the first thing you do if you had an audit agency's figured out where the risk is and do a risk assessment is what here is the top tier of work you should do or the highest risk you go

down and you do your audit plan determining how much resources you have and how you can get to the most risk. at what point in time where the risk assessments completed at sigar? >> i will go back, senator, to what i said before. we conducted a risk assessment which was published in our 2008 report to congress. that risk assessment was made up of several elements. it may not look like a risk assessment as the senator -- >> it's not a yellow book risk assessment is it? >> it would not be a yellow book assessment per say, but it would certainly contain the elements relevant to any risk assessment when it comes to oversight of money. >> did the auditors' working for you at the time tell you that was sufficient in terms of the

yellow book assessment? >> i have no auditors of the time because we completed the assessment in conjunction with our october report to congress before i was privileged to how you're my first auditor. >> so you were saying that he performed what he would consider a professional risk assessment of a major responsibility in terms of audit function without any auditors? >> i performed that assessment, senator, with intelligent and i don't feel that this is necessarily rocket science to determine what needs to be done, senator. >> i have to tell you the truth. once again, i do not need to be cruel to a rock. this isn't fun for me either. it's very uncomfortable to say i don't think that you are the right person for this job,

general fields. i don't think you were the right person for this job. that's very inappropriate. please leave the room. >> [inaudible] >> blease -- [inaudible] >> the risk assessment -- the reason that you had the finding from peer review was because you felt short of the professional standards that are demanded in the world of auditing, and i'm not saying the people that work for you are not intelligent, i'm not saying you're not intelligent, i'm not saying that you're not a hero. i'm saying this is too important a government function to not have the very highest level of experienced qualifications and expertise leading this kind of audit agency, and i have no other questions for you.

we will keep the records open if there's anything i sit in this hearing that you believe is unfair, if there's any information you want to bring to a more attention we will keep the record open and i can assure you i will get all of it with the body of an auditor and examine it and make sure that our final record in this hearing is fair and balanced and we are happy to include anything else you would like to include. thank you very much for your service to america. >> madame [cheering] if i may -- >> i want to thank you for your service as well and appreciate your forthright answers. thank you. >> thank you, senators. >> we will now take the third panel.

>> [inaudible conversations]

recently sworn in as the 74th governor of maine. the ceremony before the joint session of the legislature was about 40 minutes. our coverage as courtesy of the maine public broadcasting network. ♪

♪ [applause] >> the chair would ask anne lepage and the lepage children to step forward.

>> well the governor elect please step forward. >> raise your right hand and repeat after me. i, state your name, do swear. >> i, paul richard lepage do swear >> that i will support the constitution of the united states. >> that i will support the constitution of the united states >> and of the state >> and of the state >> so long as i shall continue. >> so long as i shall continue >> a citizen para >> a citizen thereof >> so help me god stomachs to help me god. >> i, state your name declared >> odd, paul richard lepage do swear >> that i will faithfully discharge >> i will faithfully discharge >> to the best of my abilities >> to the best of my abilities >> the duty is incumbent on me

as governor >> the duties incumbent on me as governor >> in the state of maine >> according to the constitution. >> according to the constitution >> and the laws of the state >> and the laws of the state >> so help me god >> so help me god. congratulations, governor. [applause] [cheering] [applause] [cheering]

[applause] [applause] [cheering] the secretary of state elect charles summers will come forward and read the

proclamation of the governor's election. >> mr. chairman, members of the legislature, distinguished guests, citizens of the state of maine, it is my distinct honor and high privilege to read the following proclamation. the votes given on the second day of november and the city's towns and plantations of the state of maine for governor, the returns of which have been made to the office of the secretary of state having been examined and counted by the legislature which is declared that a plurality thereof was given to paul richard lepage. he is duly elected and that he have in the presence of the two branches of the legislature in convention assembled tecum and subscribe the required constitution to qualify him to discharge the duties of that

office. i declare to make known to all persons who are in exercise of any public trust in this state and all good citizens thereof that paul lepage is governor and commander in chief of the state of maine and that through obedience should be rendered for his acts and commands as such. god save the great state of maine. [applause]

>> it is my distinct honor to present to you the honorable governor of the great state of maine, paul richard lepage. [applause] [cheering] [applause] [cheering] [applause]

mr. president, mr. speaker, members of the 125th legislature , governor baldacci, former governors king, mckernan, brennan, honored guests, i welcome you and thank you. mainers have a tradition of being hard working and working together. as i begin i would like to thank john baldacci. john and karen and his entire year administration did everything asked and more to make the transition success. [applause]

[applause] anne and i are very grateful and we join all mainers and thinking the baldaccis for their service to city, state and the nation. [applause] this morning when i was up getting ready to come over my wife handed me a note from my daughter, and i will tell you it was very difficult for me to

keep my composure. was heartfelt, it was absolutely terrific, and i just can't say enough about how proud i am of my life, anne and my family for being there, lovingly, supporting the the past 16 months. this campaign started the first week people would say who the hell is this guy? [laughter] done about january there is this lepage fellow out there. and then about the middle of may, there's a dark horse in the field and on june 9th they were calling me secretary at.

[applause] [laughter] welcome a first and foremost, i am a businessman who served his community as a major and now as it's governor. my pledge to the people is very simple. it's going to be people ahead of politics. [applause] my concern as i enter this new challenge of life is for the parents trying to make a better life for their kids, the retirees trying to survive and keep their homes on the

fixed-income. the college graduate trying to find a good paying job, the entrepreneurs with the courage to take risk to create jobs, and finally and most important, to the maine tax payers who are tired of footing the bill for the bloated establishment and the government. [applause] [cheering] it is time to make state government more accountable, it

is time to deliver value to our taxpayers, it is time to put people ahead of politics. [applause] the word people appears in the maine constitution 49 times. you cannot find a single mention of the word politics, republican, democrat, green, independent, and 37 pages of preamble articles and sections of our constitution, the framers had it right, people. [applause] [cheering]

political leaning, the obsession of winning or losing have been getting in the way of solving our problems. we need a new approach. it starts here. it starts today, and i need all of your help. [applause] i am willing to listen and work constructively with anyone committed to honest solutions that will benefit maine people. to ensure i get plenty of input, i will be hosting monthly breakfasts, meetings with groups of teachers, business people, environmental people come and

oatmeal and solutions are going to be on the menu. [laughter] the last two mornings the staff made me oatmeal and it's piling up because i get up and run out of the house. [laughter] i reintroduce the tener mckernan capital for a day. a monthly basis and all of our counties. [applause] it is my intention for myself and our commissioners to go round and learn from maine people what they want their

state to look like. i will host constituent servicers to meet directly with maine people, come, share your concerns, provide some ideas, if we disagree i assure you we will talk about areas of common ground so that we can inch forward because folks, i'm not going backwards. [applause] while i will listen to anyone, my administration will be focused on making maine work for everyone. there were no favorites, no car jelks or steve hurst for special interests good policy is public policy for everyone in maine.

[applause] there is no greater extent of serving the common good than sacrifice of servicemen and women make everyday. the peaceful transfer of power, our rights and liberties are not free. they earn each and every day by those who served. [applause] 46 service members from ne have made the ultimate sacrifice in defense of our state and our nation in the last seven years. i am honored that some of the families of our fallen heroes

are here today. [applause] [applause] dan and suzanne brochu, along with their daughter, sadie, are here with us. they lost private first class jordan brochu in afghanistan in august of 2009. starting tomorrow morning, suzanne will be the receptionist in the office of the governor. [applause]

the family of corporal andrew hutchins, of newport land is also with us. corporal hutchins gave his life and service to maine and the nation last november in afghanistan. corporal hutchins wife, heather, is due to give birth to their first child, allyssa braelynn, and march. all of maine shares the sorrow of the family of the fallen heroes and we honor their service to protect our lives and our liberties. ladies and gentlemen, please join me in a moment of silence to honor the sacrifice of our fallen heroes and to reflect on the loss of their families and members continue to endure each day that week remained free.

thank you. one area where we must put politics and special-interest aside is our education system. students are the most important people in the classroom. every decision we make and every dollar we spend must be focused on the individualized needs of each child. [applause] our standards must be higher, administrations must be leni, the dollars must go to the classroom. [applause]

and most of all, we have to find the solutions to make maine the number one state that chose the standard for education in this country. [applause] i believe we must bring a vocational education back as a priority in our schools. [applause] training our young people in the trade while the year and a diploma is a path to a better life. in addition, and you are going to find me very passionate about

this program is i believe we need to create a five-year high school program and mean where students can graduate with an associate's degree as a heads up and going into the workforce or as credit towards a for your diploma degree at the university college level. [applause] i believe this will do two very important things as it allows the used to be in their support systems for one extra year and it lowers the cost of education, the high cost of education at the university level. and i really hope that both sides of the aisle can come to grips with educating the most important asset in this state, and it's our kids.

[applause] approximately one in every three mainers is on the form of state or local government assistance for food, shelter, and come or health care. for the truly needy and impaired, these programs are an important lifeline, and we must maintain them. [applause] while we are a very generous people, we do have not the ability to pay for everyone and we do have limits on our

resources. our programs -- [applause] the programs and may not need to focus on maine residents, they must focus -- [applause] [cheering] they must focus our efforts to move people from dependency to self-sufficiency, and we must -- [applause] and we must implement a tiered system that rewards work and progress towards self-sufficiency. [applause]

we need to have a limit. cannot be a lifetime career. it needs to have a start and end. [applause] i recently met jennifer, a single mother, for children, and a full-time nursing student. like me, jennifer a state some very tough times. jennifer works two and three jobs at any given time has to rely on temporary assistance to needy families and food supplement programs to make ends meet for her and her four children. seven years ago she built a home

through the help of habitat for humanity's. jennifer was determined to be a good example to her kids, and other single moms. this coming may, she will be gradual eating from nursing school. [applause] nearly every day someone asks how she does it she tells them all who will listen the life well lived doesn't happen overnight. today, jennifer all of maine is listening and i am proud to share your story. in my administration, your example will be our goal and eventually the norm. [applause]

ladies and gentlemen, there are so many jennifer's in the state of maine who want to move ahead. we need to provide the leadership so that they can all move ahead and we can all applaud people like jennifer. [applause] my favorite subject, business. maine is the hardest place in the country to start and grow a business. consequently, mainers term on average 80% of the per capita income in this country and we are failing desperately to make the investment needed to grow

our tax base. folks, my staff gets nervous when i use two words quite frankly -- [laughter] that means i'm going off on a tangent. only the private-sector can create the jobs and investment we need to move this state forward. [applause] ..

drives investment and innovation without profit, no one has an incentive to create jobs or build a tax base. profit is what keeps our youth from leaving maine in search of better opportunities. profit is what makes the public sector possible. without profit, we do not have economic it to the and we do not have income to grow the tax base therefore, profit pays the bills. [applause]

profit leads to more competition and through competition week, we the people end up with more choice and greater value. [applause] every private or public sector job, every program, every nonprofit, every state server, it every advancement in society started because someone took a nickel worth of input and turned it into a dime worth of output. it is a grand that has to continue. here are four steps to make it happen. one, simplicity. it needs to get a lot easier to do business in the state of maine.

[applause] we are conducting a statewide red tape remove audit to audit to identify the statutes, rules and the roadblocks that prevent us from creating the jobs that we need. [applause] be mindful, i believe in vigorous regulations. i believe in strong protection. however, the safeguards need to be clear, decisions quick and we need to have a cooperative relationship between regulators and the there. [applause]

second, savings. it needs to be less expensive to do business in maine. everything from licensing of business, health care, workers compensation, utility costs, i'll need to go down. [applause] business is nothing but a math game. it is the same for everyone, whether you are international player of the paper industry or the corner deli, you need to reach a breakeven.. the cost that we can control through public wolesi need to be addressed. are our forests, fisheries and

farmland will never reach our economic potential in maine if it is cheaper elsewhere to operate factories that churn would into paper, process fish into meals and potatoes into my wife's favorite chips. [applause] finally, skills. skills. we need to train the next generation of workers in maine to prepare them for the industry that will offer the most potential. we have one of the world's best science and math magnet schools and limestone, maine. [applause]

is run by motivated teachers, motivated students so it will be made to work. representative terry hayes, the assistant democratic leader in the main house, is a proud man magnet school mom. her son danny participated in a one-week program that applied and enrolled in the mag of school because he had interest in math and science. ladies and gentlemen, today danny, dean's list in the engineering school at the university of maine. he aspires to live in maine. [applause] week, the elected officials, need to work together to make sure danny hayes and others like

he can stay close to home, earn a living and raise their families. [applause] and i get a lot of finally. scale. we need to provide our industry with competitive advantages in cost, regulatory environment and trained labor for us to succeed. we are fighting for the future of maine every single day. on a global basis. that is how we are going to achieve a competitive nature, is we need to have balance. we need to find the right talents between the mr meant,

between education and most importantly, competitive workforce. if we do that, we can return the fate of maine -- the state of maine to a competitive contributor to the world economy and we will be in a position to attract the new industries of information technology, biotechnology, semiconductor and all the new world economies. we need to find balance in maine but we need to do it together. [applause] it can only be done if we do it together, the senate, the house, the governor and most importantly, the people of the state of maine. [applause]

in closing, i would like to say i ran for governor because i know how to run a business. i know how to create jobs. in my experience, you build a team, you make decisions and you stand accountable. i will spend every day of the next four years working to make maine a better place for all maine people. [applause] i will start by asking one simple question, can a governor do it alone? and the answer is simply, again again --. >> know! >> exactly. is going to take hard work from

everyone and i'm ready to provide the leadership, the focus to move the state of maine forward. i do not care about editorials, opinion polls -- [cheers] or the next election. [applause] or the next election, because frankly i have for years and a job to do. [applause] in four years, i will stand accountable for the jobs that we create, for the prosperity that we bring to our state. being governor is not about me. it is not about my

administration. it is not about the legislature. it is not about augustine eurocrats. it is about maine people. [applause] and i'm going to let maine people judge how maine move forward in the next four years. thank you for being here. thank you for listening and let's get to work. thank you. [applause] [applause]

>> now a form on how federal and state government can reduce spending and increase revenues. speakers include outgoing pennsylvania governor ed rendell, former senator evan

bayh and budget director alice rivlin. this nearly 90 minute event was hosted by the brookings institution. >> welcome to -- hope everyone had a good lunch. we are going to pivot now. we have been talking about innovation in the private sector and innovation in the public sector from greece to germantown pennsylvania, a local state and national government budget crisis. without question, this is the greatest thing that is driving innovation in politics. yet, as we heard on the first three panels we are all facing infrastructure and other investment deficits that are holding us back from competing internationally as the country. so, the question for all of our panelists really is how to do

these two twin challenges of the same time, get our fiscal health back in order while not under investing in the things that make us competitive. and we are going to start today, i will introduce the panel and a second that we are going to start a think with a question that is less known well in washington which is the crisis facing stoat -- state localities. states have to budget their balance yet state actors based significant shortfalls. pennsylvania faces at roughly a 45 billion-dollar shortfall as the governor explained to us in the second. new york roughly lined -- nine. texas, 14 and california at least $18 billion perhaps upwards of $25 billion. these are enormous challenges. states revenues in particular are sensitive to economic fluctuations and in particular the rising entitlement costs and public pension costs plus medicare and medicaid. and because states can't run

deficits it often forces pragmatism over political polarization so at the national level, the things that the state have to do on an annual basis we have been able to roll into longer-term deficits. and the question is whether not to those are sustainable and will force a meeting of the minds in a very polarized washington. to address all of these issues we have assembled a really terrific panel that i am delighted to have starting with governor ed rendell for the last eight years has been and will be the governor of pennsylvania. that is 2913 days down in five or six to go. [laughter] we do data here. alice rivlin to my right who who is help the two top jobs in the federal government at either end of pennsylvania avenue addressing budget issues, the congressional budget office and the director of the office of management and budget. less well-known perhaps outside of this building is that she has

been a senior fellow here at brookings often off and on for oardec it's and she has been a member recently of both the president's commission on fiscal responsibility and reform and cochair of the bipartisan policy debt reduction task force with senator pete domenici. to her right is senator evan bayh who for the last 12 years has been senator from indiana intel just last week, and before that was a governor for eight years and it is hard to imagine just as it is hard to imagine looking at alice that she has been here for four decades and it is hard to imagine he has been a public office for that long but he started surely after he graduated from the university of virginia law school. >> i thought you were going to say high school. [laughter] speak to his right literally and figuratively is ron askins who served on the majority house ways and means committee staff

during been years when newt gingrich was speaker of the house and when speaker gingrich and president clinton were able to work together on a number of different issues including welfare for form. ron was a senior pfizer to president george w. bush on welfare policies and other things. he has written quite a bit about deficit reduction and government reform and efficiencies and then finally to the far right, ann fudge who is a perking which unlike everybody else on this panel technically she is my boss that is a good thing, ann having run a triptych outfit like trent trent -- kraft foods and ann also served on the presidents deficit commission. so with that, starting with governor rendell, you have been not just a governor but also a mayor and the national party chairman. connecting the federal to the local 2009 stimulus package when

a long way to helping the localities do with the immediate budget shortfalls from a financial crisis but that money is not coming back or at least not in enormous amounts became the first two years. how do state and local leaders do this? how did they address both the budget deficit but also the investment deficits that they are facing? >> let me answer that by going back a little bit in time to when i first became governor in the first six years i was governor. we had good times, good growth, growth averaging around 5%. every percent of growth for pennsylvania's initial $260 million of revenue and i took that positional revenue and savings that we were able to effectuate in the cost of the operation of the government and spent it. i don't apologize for spending it. i believe government should spend money on worthwhile things like a physical infrastructure or intellectual infrastructure protecting our most vulnerable

citizens. i spent it in pennsylvania is by far the better for that spending. how do we say that money? we took out, for this session we continue this but we started taking out things for the cost of the operation of the government. today we spend almost $2 billion a year less on the operation of the government, the overhead of the pennsylvania government than we did in 2002. in terms of raw numbers, not adjusted for inflation, our gdl, it general government operations is less less than it was in 200. we did it as we apply the same things that we did in philadelphia. we looked at every government program and said a lemonade it if it is not good. even eliminated if it is good but not reaching the mark. find a way to do it better. let me just give you two quick examples in the bible go to what is next. believe it or not when i became governor pennsylvania had 800 separate contracts for office

supplies. by sourcing that in bidding and out one company, justin that alone, we saved $11 million. $11 million a year. overall by leveraging purchasing and pennsylvania purchased over $3 billion a little under $4 billion in goods and services. by sourcing are purchasing we saved over $300 million a year on an annualized basis. the center for american progress said he said of the federal government at the same thing he could save $40 billion a year and given what the federal government invested in purchases that is probably not far off the mark. commonsense things. we had six computer contracts. we source them, bid them out. we save $70 million on computers for the workforce for the 78,000 workers we had in the state of pennsylvania. second and these are things that are obvious on your nose but nobody ever did them. we have significant dollars for

weatherization. are on dollars and of course lately and uptick in federal dollars and then with the stimulus a huge uptick in federal dollars but we never connected those weatherization dollars to our participants. people would apply for leahy persistence and we would give it to them and they would have a weatherization program and never they should me. somebody decided let's start by the rising the people who are asking for lie he didn't guess what happened? our request went significantly down and we save significant money. by whether rising them they didn't need to use as much fuel. commonsense stuff. i could keep you here for the next hour talking about other examples but i won't. let me shift now to post recession. post recession. in the midst of a reception every state has made budget cuts and in pennsylvania we cut $3.5 billion out of our budget in the last two years.

the new governor has had to make further budget cuts. but i believe by making those budget cuts in the right way, by increased revenue and that is happening all over. governor christie in the state of the state address yesterday said the same thing is happening in pennsylvania return of revenue growth. we had last month the revenue came in at $175 million above estimate. we are thinking that they may have 4% revenue growth in the next fiscal year beginning july 1 to june 30. with that increased revenue, with increased savings with make in these cuts continuing to find new ways to do and there are always new ways to do it, borrow from everybody in the world. by doing that i think we can get through this crisis. pennsylvania loses 2.6 billion in stimulus. it loses another billion dollars

in increased and mandated costs, that is dedicated correction in almost $500 million a year in increased pension costs for our teachers and our state workers. so those who are too big drivers. with renewed growth, with judicious savings we will be able to get through i think the next year or maybe the next two. this type of spending that i did even in the peak of the recession i increased education funding significantly. i think we were the only state in the union that did that we need to do that and we have made great progress in education. that will probably grind to a hault of the put on hold for the next two years as we boost the federal money but we can get through this if we put increase spending hopefully when two years pass, if the economy is robust enough and growth continues he can get back to investing in things that we need to invest in. the last thing, is equal infrastructure. the way we have invested in

pennsylvania is by pumping up the capital budget. even in these difficult times states can use capital budgets to continue to invest in their physical infrastructure. to make it better and to create significant jobs and significant contracts for both construction companies and manufacturing companies. i urge on the governors or existing governors to look at their capital capital budgets as a way to do it. but frankly, last thought, frankly it is long overdue for the federal government to have a capital budget. there is no reason for us to pay for bridges which have a 40 year lifespan the same way we pay for paper clips that have the 40 day lifespan. >> alice. you have been on commission after commission. i was surprised to hear that he found that to be an energizing, and energy additive experience rather than one that sucked the energy out of you. tell us about that. what is making you think that this might actually be a fixable mess?

>> if it it is not a fixable mess we are in deep trouble. we have to fix it. and, unlike the governors experience, which is optimistic in the sense that he is saying maybe the economy has turned the corner and our revenues will start up and things will get better, the states are in trouble because of the recession and the deep financial crisis that precipitated it. that is unfortunately not true of the federal government. the crisis facing the federal government, and it is a serious threat, is not the crisis of a recession, although the recession and the things that we had to do like aiding the state

of pennsylvania to get out of it increased the debt, but that rob owns that the united states government at the federal level is facing is that we are on a track that is unsustainable, not excess of the recession but excessive things we have done policywise over a great many years combined with the fact that we have an aging population and a very rapidly rising cost of medical care and case for good medical care. we wanted. we all wanted and older people consume more of it. so this is a story that everybody is familiar with because it has been true for a long time but as we project the federal budget, even as the economy recovers what you see is

federal spending will grow faster than the economy can grow and revenues won't. revenues will grow at any set of tax rates if the economy grows, but the three big entitlement programs driving federal spending over the next few yearo a much lesser extent social security, will rise faster than our revenues will and that just opens and increasing wedge said we have to borrow. this has been true for a long time. we knew this was coming, but it is hitting us at a very bad time. it is hitting us at a time when our debt level has risen. a few years ago you might have said, really serious problems about the aging population and the baby boomers and rising cost of medical care, but we have

time to fix that because we are not an especially high debt country. we have debt of about 40% of our gdp three years ago. well, that is not through any more. now does more than 60 and on the projections, even with significant recovery that goes to 80%, 100%. that is serious stuff and the real question is what bill post, can we get back on a sustainable fiscal track, which will take reducing spending and increasing revenues. can we get back on a sustainable fiscal track and still invest in our future? now, basically i am only optimistic because we have to get back on the sustainable track. whether we can do it without killing our future investment is

going to be really really hard and that is what the sessions have been about. everybody who hasn't quite caught up with the realities will say, well yeah right, we have to fix the fiscal thing but they can't hurt the most vulnerable. we can't hurt national defense. we certainly don't want to hurt research organization or infrastructure, but you know -- so that is most of it. >> from a mass 10-point how do you do it? to give us a sense of the two commissions had a lot of overlap and there were some differences but where is the biggest savings where do the biggest savings have to come from? >> you do everything you can possibly think of and that means first reforming the tax system so we can raise more revenues with a simple or and more

pro-growth tax system. this is an enormous opportunity to do that. we may also need a broad-based consumption tax which states will not be happy about. but that is certainly a possibility. we need to reform medicare and we need to reform social security although that gets a lot more attention than it really deserves. it is a small part of the problem. and, the other parts of the government, defense and discretionary domestic spending a lot more efficient and find new ways of financing the infrastructure that we need. that is not going to come out of the usual sources. we have got to finance

infrastructure in a much more intelligent way. which i think means road use these instead of the gas tax, congestion fees to reduce congestion and a lot more tolling. >> senator bayh, you have been a well spoken critic on the inability of washington and particularly the other end of pennsylvania avenue to get things like this done. so on both the politics and the substance, on the politics even though we are facing this cliff, can we apply the brakes in time before we go off of it? but on the substance side republicans say we don't have a revenue problem, we have a spending problem. are the democrats that are willing to make hard choices particularly on things like health care costs, essentially reforming health care yet again in order to hit the brakes before we go off a cliff?

>> well, the answer to that village cs but it will not be easy at all. first let me start right thinking you and everybody at brookings for hosting in my time in government. every year as you know we had to give state of the state addresses that would force me to take a longer-term view. in congress it doesn't happen that often but there is no question finding a comparative advantage economically and innovation is going to be key to that drives everything else. in the last week or so we have seen an expert in a situation where the secretary of defense is proposing reforms in the pentagon because of his view that we are entering an age of fiscal austerity from a budget standpoint. this dialogue we are having today literally touches on every facet of the german and american life and how it is all that is going to ruin define our country for the next generation of these perhaps longer. so to get to your question, i am an optimist by nature, but my experience on the hill for 12

years is perhaps taught me to be a little more skeptical by the use of both the way these things can be dressed particularly because of the political dynamics. my own guess is the following will happen. will take exogenous events, the debt ceiling limit we are going to buff up against. that is something that can't be avoided or coaches like the expiration of the tax cuts on december 31 couldn't be avoided. that forced the congress to act. we can't allow the country to default. we may see a couple of temporary extensions but ultimately it will get done but the price for that getting done will be some real fiscal reform perhaps including broad based tax reform somewhere along the lines that alice was mentioning, the democrats will have to be willing to say we will agree to spending caps going forward. they were pub and perhaps will have to agree to reform and tax code that will report investment savings make it more efficient and get the corporate rate down.

at the same time it will generate more revenue for the governments government so there are agreements and compromises to be made but the overall political environment right now and i've been around the process for a long time, but the exception of the 1960s during the time of year vietnam war and some racial tensions and those sorts of things i can't recall the political environment being as polarized and as difficult as it is today. that will make progress more difficult but exogenous events will force progress. they will be episodically occasions when enlightened self-interest on the part of both parties will lead them to strike compromises. for example in my legislature when i was governor the democrats controlled a few years and they were the hopkins controlled a few years and it was split a few years. people who are in power, the democrats control the white house in the senate and their publicans val told chawla haussler held accountable. you can't howl at the moment. moon. you can't just make

prognostications without some grounding in substance so i think pretty quickly both sides will see there is an election coming up even though they disagree on most things. is going to be in their self-interest to get a few things done with regard to the topic of innovation. i would say "don't ask don't tell" is coming up. there is some prospect for some progress on education reform. >> that is no child left behind. >> i am sorry, what did i say? no child left behind. i was going to say in the area of immigration reform we are not going going to have the d.r.e.a.m. act or something of broadcast -- rod-based immigration reform. you could see some progress on that. green energy. i think there is -- the republicans will want us to be more energy independent. democrats would like implications for co2 so there is some progress there to be made. protecting intellectual property which at the end of the day you

can animate all you want to. if other people still your ideas it doesn't benefit you economically quite so much so perhaps a more rigorous regime of intellectual property protection. even if the overarching narrative is pretty disagreeable. does that answer your question? >> it does and for those who weren't here earlier, two of those issues on reforming immigration for high skilled workers and also having to do with with intellectual-property. >> one other thing, the context of the tax reform which i really do hope we can grapple with as we are dealing with the debt ceiling making permanent the tax credit is kind of a no-brainer. those of us up on the hill or used to be up on the hill we like having it renewed because it made people come to us and ask her to be renewed but it save better policy about to be remaining permanent i would hope we can get done in the course of that committee.

>> ron, if you have spoken about the bipartisan failure with a dead issue and you've also lived on capitol hill through times when democrats and republicans with a lot of fighting both within the parties and between them figured out a way to work together. is it possible this time around that an intensely polarized environment -- the senate, i think the most liberal republican and there are two from maine, senator snowe and senator collins, are to the right of the most conservative democrats ben nelson in the house. is not that much different and that is a real sea change. things are a lot more polarized structure leon the hill than they were and within the republican caucus on one of the issues senator bite back talked about in the event coming up with the debt ceiling, there doesn't appear yet to be consensus within the republican party on how to deal with that. how do you see it on the hill particularly on the republican side?

is there a coalition for common ground? >> let me begin with a personal story that the other members of the panel might enjoy. last night it were, and i had all my books and put them on the kitchen table and it just happened the agenda for this panel is on the top. my wife came in a few minutes later and she looked at it and she said wow, governor, senator and a great alice rivlin and a great business executive? who the hell is this guy atkins? the other panelists i want to thank you or in hansen my reputation. i think i'm like senator bayh and i haven't heard him say that before that i am in errantly a optimist and i've seen a lot of amazing pieces of legislation go through the house and the senate and pass the people said would not pass but i think 15 years on the hill and a couple of years in the white house that convinced me that we are a long ways from any serious solution

to our problem and it is questionable whether we will get there before we have a really serious outside event. so i'm not optimistic but if you do a mathematical thing here and figure out what are the factors that tend to push toward towards some sort of agreement among republicans and factors that would oppose it. there have been really hopeful signs. by the way alice offices by mind and i try to go by there as much as i can. republicans are serious about cutting appropriations. the governor right now -- i'll bet you they do it. out that they will get the 50 or 60 million. if you look at appropriations, these are some really serious deep cuts. some 20 or 30% cuts and i think they will do it. they probably won't become law, but that will be dynamic if the house passes it.

the second thing i think is just completely shocking and there's not a single person in this room that can predict anything like this would have happened and that is the crapo and coburn signed on to the tax increases. that is enormous and especially for someone who hangs out with republicans that antipathy towards increased access to shot them. it passes any human understanding that republicans are so opposed to taxation. so the fact that coburn, they're not there in many who are more conservative than coburn would sign on to something that involve tax increases a big deal. third i think ryan is a big deal here. boehner is a key to met but ryan understands this that. he has spoken it brookings and all the separate his material. people don't weigh like a solutions but they are real solutions and he is a real leader and i think he will force the house and forced the house leadership is necessary to do something serious. the most important thing potentially is the republican

party. the situation is made for republicans to do what they want to do which is reduce the size of government. they love to vote for increased spending but intellectually republicans talk at nothing about smaller government and what better situation to actually do it than the one we are in now? at their indications on the other side too. i think one of the most important is the rule that which is passed in the house that republicans republicans favored a'lafonte. i think it would take a mathematical genius to figure it out out and what they figured out is if you increase spending by a trillion dollars that really is a trillion dollars that will increase the deficit but if you cut taxes by a trillion dollars that is not really a trillion dollars. so tax cuts are exempted from the budget rules which is just bizarre and the thing that really bothers me about it is that as one of the most effective budget process mechanisms that congress has invented and actually did have some effect and now it's been more or less ruined. the final thing i think is really important,

notwithstanding the fact that i think ryan is a great leader, the leadership on both the house and senate side think are really untested in something this dramatic that will really take very serious compromise in giving in on both sides and especially now that the new republican membership in the house. i was in the house when i was a step on the ways and means committee when there were 75 freshmen in the house and they were all wired and they were going to change washington and by golly washington was never going to change them. compromise, no we we are not gog to come from ice. compromise is to feed and there were a lot of freshmen that felt that when the house. the only solution known to man or god is great leadership. no matter what you think about nudes, was a god in 1995 and 1996 and eight really really ran over republicans in the house. you may remember republican shut down the government and clinton was cleaning republicans clock.

he went back for the it's time to get a deal. he got a deal and brought it back and pick session with house members, very dramatic session. newts gained i would say a 20 minute talk about what was in the deal. does a brilliant talk to him when he got through you looked at it and said, and he said this is the best we can do. it may not be the best deal but this is the best deal we are going to get in if you don't take it you could find yourself another speaker. and they took it, which when people were in that room very few people were going to take it so that is what it takes. and maybe -- and maybe mcconnell will turn out that way but it isn't clear now that the leadership that is needed will really be present. so i'm not optimistic. [laughter] so ann, i am the r&d division of the company that is not sure whether not it is going going to

have that product for you to sell but the product that appears to be coming your way is not liked either by the engineers or the assembly line but everybody saying we have to get it out there otherwise the company fails. how do you sell that to consumers? >> i think one of the things that -- first of all i want to make a comment to what ron said about senator coburn and i'm going to use that as sort of the platform for my other comments. your comment was he were surprised that he supported tax increases. if i made another statement that would be equivalent to that, it would need that he supported the recommendation of the fiscal commission which meant that we would deal with spending and we would deal with texas, which comes off in a very different banner in terms of the interpretation of the statement. and i think, when you look at it in the context of what actually

for several senators weather was durbin and the fact that social security was affected by the recommendations or taxes, back to her simple mathematics, the truth of the matter is we have to deal with both sides of the equation to begin to tackle the problem. i say that to say this. in communications to consumers, it it is about what we say and how we say it. the facts are the facts but what is highlighted and what is perhaps diminished impacts a person's perception of the issue during the course of the eight months or so and serving on the fiscal commission, one of the things that i was most concerned about was have we done a good job of helping people understand the depth of the problem? so there were many efforts that were undertaken to do that, whether for those of you who may have seen "the new york times"

article when they had a full page on here is how you can solve the deficit problem and you know, here is a lever that you can push. that was a way to help people try to understand the complexity of the problem. believe it or not there was an act that was put together so that young people could look at how we tackle the problem understanding both sides of the equation. the interesting thing about communications today versus 20 years ago or communications of the 21st century is bad there is no one in mass-market communication platform any more. there are multiple and there are multiple consumer segments, which means that as we try to communicate the urgency of today's problem and what the potential solutions are, that we have to come and in a very micro level. coming up with one big you know macromessage is not going to work and i think one of the things that you see -- i have to

smile. i don't know if a lot of you know that pete peterson started his career in the advertising business but one of the things that his organization has done is come out with these ads. you can decide whether you like them or not but they are trying to increase awareness of the problem. it is the huge a debt as it talks about in a very interesting way the problems we are dealing with. that is one factor and that is one way to go about it and a mass level. on another level there were several groups out there who in their own way are trying to get groups of people together to talk about the problem and to talk about possible solutions. this is a very challenging problem. one of the things i think governor rendell spoke to in his opening comments with what they have done and pennsylvania in terms of addressing both state cuts as well as the investment.

if there was a phrase that i would use in terms of helping people understand what we need to do it is to cut and the best phrase which we have tried to incorporate many times during the course of our commentary in the report. we are in a world where, like business has been doing for the past 20 years, there is not enough money to do everything we want to do. so through productivity and a really conscious look at what can we afford and what do we have to cut, that has been the approach that has kept business you now at a point of trying to thrive through some very challenging times and not having sufficient money to invest. but it is that balance of cutting and investing so if there were a phrase that is a marketer i would like to begin to inculcate more in the conversation that we need to cut and we need to invest. there is no wonder the other. it is not either/or. we have to do both and i think part of the story will be what

individual states have been able to do and how we raise the profile of what state actions have done to keep states afloat and how then we might be able to use that on a broader national level. >> increase cutting investment derives in the streets and in germantown. >> has worked very well in pennsylvania. actually i just left the infrastructure organization that i chair with governor schwarzenegger and mayor bloomberg and someone suggested we stop using the word infrastructure which people laze over and start using the word future structure which may or may not be good. i want to just comment on what ann said about invest. we have got to change that dynamic. we have got to change the american people that there is good spending and is investing in things that are important like our intellectual's structure and art both and we have got to discern the

difference between the two. we have to cut and eliminating get that of the ad spending that we can't do it at the cost of investing. i was on a george stephanopoulos show in january of last year and they played a tape of mike pence talking to the sea captain and he was pounding the table saying we are the tape -- party of no. they came back to me and said what do you think? i said it is a recipe for disaster. if we stop at nothing there is in the business in this country that has grown successful that didn't invest in its own future and if we do that we are cooked. so fox interested in bloodsport invited congresswoman pence am i onto the same show. he came -- if the same riff and it was my turn and i said congresswoman, you seem like a reasonable man to me. truth be told he didn't. [laughter]

i have learned enough on tv to want to be the nice guy. he says you seem like a reasonable man to me. tell our viewers how we are going to keep our roads, bridges, our dams and levees and ports and water systems how we going to keep them safe and working efficiently so we can compete economically and have a sense of well-being? how are we going to do that if we don't invest in their upkeep? he really was silent for 10 or 15 seconds and i think the question had never been phrased that way to him. finally he said the best he could come up with was there you democrats go again wording -- using the word and bess when you really mean spend. that was the sum of this answer. so we do have to find a way to get that message across. maybe not inside the beltway but we have got to find a way to get that message across outside the beltway and american hometowns. you can't stop investing. no business does it. fleece top investing we are fast on our way to being a second-class economic power.

no question. no ifs, ands or buts about it. the american infrastructure in case you haven't noticed is crumbling. it is crumbling right before our eyes and no one seems to have the will to do much about it. >> sticking on the infrastructure., alice, senator bayh, ron, other than the transportation bill how much appetite and how much budget bandwidth is there for investment or are there ways to structure it like what the governor was suggesting before about a capital budget for the federal government? we we heard jeff immelt for instance earlier today being not particularly optimistic about in infrastructure bank. where could this lead or where won't this lead? >> first you may be pleased to know that the congressman is about to receive enlightenment because he is thinking about

running for governor if of my stay. he may have a different take on federal aid to states. it is true that is the governor was saying not all spending is created equal. some spending has a more profound effect on productivity, efficiency, job creation and those sorts of things and we should probably prioritize that in a constrained fiscal environment. we are going to have to set priorities and i would just emphasize we may be in the short term so we need to differentiate between the short-term short-term and long-term. we may not be able to sustain the levels in the short term that we desire. in a -- may need to prioritize fighting the building getting the house in order but then quickly pivot once we have accomplished that to prioritize investments in those things that really to pursue our comparative advantage and lead to innovation both physical and intellectual

capital. that is the way i look as though we may be in for period of two or three years. >> when i became mayor of philadelphia we face the biggest deficit than any american city everyday. i cut everything and people were furious. everywhere he went i was whatever but i managed to use the capital budget to invest in our growth and to create jobs in the comic -- economic vitality. weisser such a resistance? i've never been able to figure this out. why is there such a resistance in washington to establish a capital budget? every other political subdivision has it, most businesses do it. why is there an aversion to to it? >> i have never been in appropriator ad so that gets into the particular dynamics of the appropriations committees in who gets credit for the projects and things like that but on just a theoretical scale you are absolutely right. but we are dealing with congress here and how the congress operates and that gets into the realm of psychology at or

somebody suggest that normal psychology. >> i think actually. >> the economic of politics and you are talking about one of the hill is the other. >> the fear of budget tears about establishing a capital budget is that it's become simply an excuse for more borrowing. and i think the key to financing infrastructure is we have got to charge for the use of the infrastructure in sensible ways. now, at your level, the state level, you actually do some of that. you do it at the local level. if you to borrow for infrastructure but something has to back those bonds, a dedicated revenue stream of some sort. at the federal level, we have not been used to doing that so that budget tears have thought well, there they go again those

infrastructure folks. they just want to add to the federal debt and the federal debt is going up very fast already and they can't add to that. so it is going to be a different kind of thinking about how you find the infrastructure at the federal level. the other thing is i think, the reason there is ben resistance, is it is very hard to define what is investment in the federal budget, because the federal government doesn't actually do a lot of infrastructure itself. it is grants and if you think the of long-lasting stuff as physical investment most of it is military in the federal budget. so it is very different from looking at the state budget.

>> could i just make one other point? i want to follow-up follow up on something ron said. seems like we have a gambit of the point of view represented but if ron is correct and the debt ceiling is not the precipitating event to a lease to begin to make a down down payment on addressing the fiscal problem than the next stop along the road will be either a substantial depreciation and are currently not in an orderly way that some sort of precipitous way or a spike in interest rates. it will be some market reaction. the market will impose discipline in the political process but if that point the imbalance has also gotten to such a size that dealing with them will be even more painful and disruptive, and so that is why him hoping that cooler heads will prevail and we will have this initial exogenous event service to trigger rather than waiting a few years down the road when it is so much larger

and difficult to grapple with. >> the idea, this distinction between investment and other spending is one i think everybody appreciates and i'm not surprised on your story about pans turned out the way it did because everybody thinks of investment and especially investment in human capital which the federal government does do a lot of. this is a great reason why we have to deal with the deficit now, because if we do with it in an emergency in the events you just described it is going to be like gramm-rudman-hollings. we will have across-the-board cuts and we are not going to be careful about the cuts and nobody's going to have time to think about if we do this it will happen. we need a reasonable debate and we need to start now and have an orderly recent debate where the ones with the most votes wins and there is some room for bipartisan compromise. so this too may your point about investment is really a point about why we need to get started and do this